An Uber-successful business model may change more than transportation


Smartphone-based ride services are still in a regulatory purgatory in the Twin Cities. But one of the companies offering the service is turning heads in the business world as investors conclude that it makes both dollars and sense.

The private transportation startup Uber is technically operating illegally in Minneapolis while the city figures out how it's going to regulate the business.

Evidence of its financial success around the country is filtering out, though, and some analysts see the company changing urban transportation with a business model that may eventually be applied to services beyond rides.

The Washington Post reports Uber has released numbers showing the median wage for its New York City drivers working at least 40 hours a week is $90,766 a year. While drivers pay for the cost of maintaining their vehicles, that income is more than three times what a typical taxi driver makes, the Post says.

Those drivers are not the only New Yorkers jumping on the Uber bandwagon. Unidentified sources told The Wall Street Journal this week that investors are offering valuations of $17 billion for the company. That's up from $3.5 billion last summer, the Journal reports, for a company that was founded in 2009.

Regulatory uncertainty

Uber, like its competitor Lyft, uses a smartphone app to connect drivers with users in need of a ride. Drivers use their own vehicles and Uber takes 20 percent of the fare, the Post reports.

Traditional taxi drivers must pay for permits to operate their cabs. They argue that drivers for Uber and Lyft should be regulated in the same way to ensure safety and quality. The Star Tribune reports Minneapolis cab companies made that case at a recent public hearing where backers of the startups argued they are a different breed than taxis because they accept only pre-arranged rides and can't be hailed on the street.

The state Department of Commerce issued a consumer alert this month warning Minnesotans that the drivers working for such private transportation providers may not be insured. The department says most personal insurance policies exclude coverage when drivers use their cars for commercial purposes.

City council member Jacob Frey is leading Minneapolis' effort to craft an ordinance to regulate the new companies. Uber is operating in 60 U.S. cities and Frey tells City Pages none has found an entirely successful way to regulate them:

"We're looking at being the first to do this properly -- one, by ensuring safety, but two, by allowing new and innovative businesses to operate and thrive to the fullest extent. It's a great business model, and for us to shut our doors by strangling it with regulation would be dumb, but at the same time it's our job to ensure public safety and a big part of that is making sure that insurance is up to speed and complete."

Future possibilities

Meanwhile, Uber's early success is tantalizing many business analysts who already envision the company moving beyond rides to offer urban dwellers other services.

Business Insider calls Uber a next-generation logistics company that could eventually compete with FedEx and UPS, noting that in New York Uber already has a package delivery system that lets users hail bike messengers.

Kevin Roose, writing for New York Magazine, says the key to Uber is a "digital mesh" that brings together the provider and the user of a service in a hurry. And if it can bring people rides, what else can it bring them? Roose says Uber's plan is to out-grow ride sharing and he suggests the company could eventually be more valuable than Facebook.

Far-fetched? A Washington Post piece looking at the digital mesh concept reminds us that mastering a logistics network allowed Amazon to sell more than books and Google to become more than a search engine.

Let's not get too far down the road, though. Because for now Uber users still need a way to get across Minneapolis without running afoul of city hall.

Frey tells City Pages he hopes to have an ordinance ready for a committee vote next week, which could lead to consideration by the full city council later in June.

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